The ongoing cost shift in employer health benefits

Premiums for people who get health insurance through their jobs increased at a relatively glacial pace in 2016, but that's a result of employers continuing to offer more plans that require workers to pay for more of their healthcare out of pocket.

The Kaiser Family Foundation and Health Research & Educational Trust on Wednesday put out their 18th annual employer health benefits survey, which is a snapshot of health benefits provided by 1,933 small, mid-sized and large employers. More than 150 million Americans get their health coverage through their employer, compared to the roughly 20 million people who buy their coverage on and off the Affordable Care Act's troubled insurance exchanges.

Premiums for single and family coverage each increased on average about 3% in 2016—near historic lows and good news for workers and companies concerned about healthcare costs. But those low growth rates are still above inflation and the average employee's raise. The average family premium, which includes the amount contributed by both the employer and the employee, was $18,142 in 2016. Individual employer coverage cost an average of $6,435.

Employers have been able to keep premium growth low the past few years by pushing health plans that have higher deductibles and more general cost-sharing for employers, partially in response to the ACA's Cadillac tax. Plans with narrow networks of hospitals and doctors also have been used as lower-premium options but require people to pay more out of pocket if they stray outside of that network for care.

Employers rarely only offer narrow HMOs, and most still put them alongside PPO options that have broader networks, said Paul Fronstin, a health director at the Employee Benefit Research Institute. Yet PPO options fell slightly out of favor in 2016, according to the employer survey data.

Employers and some analysts argue that high deductibles, copays and coinsurance rates—all cost-sharing mechanisms that give consumers more “skin in the game”—spur people to think more about costs and reduce unnecessary healthcare services. But many people feel their employer-sponsored coverage has become less of a benefit and more like a way to shift out-of-pocket costs onto the backs of workers.

“I think it's the biggest change in healthcare in America that we are not really debating,” Kaiser Family Foundation CEO Drew Altman said Wednesday.

Middle-class individuals and families have especially felt the weight of skimpier benefits and higher healthcare costs over time. Workers' earnings increased by 60% from 1999 to 2016, according to the Kaiser Family Foundation/HRET data, but the amount they paid for their premiums soared 242% over the same time period. Out-of-pocket costs similarly outpaced wages.

“We've seen the trend over the last decade of increasing the out-of-pocket burden on insured people,” said Erin Trish, a health policy professor at the University of Southern California. “This was going on in the employer-sponsored market even before the ACA came around.”

Indeed, the Kaiser Family Foundation/HRET data show annual deductibles, or the amount someone has to pay before health insurance kicks in, began their marked increase in 2008. The average deductible among employees carrying one has doubled from 2008 to 2016, from $735 to $1,478.

People who work at companies with 200 or fewer employees are likely to have even higher deductibles. The average deductible for people in those types of smaller firms was more than $2,000, according to the data.

Roughly 29% of employees were enrolled in a high-deductible health plan with some kind of tax-advantaged health savings account in 2016, compared with just 4% in 2006, according to the survey. Approximately 40% of all insured Americans are in some kind of high-deductible plan, with or without an HSA.

But USC's Trish pointed out that many high-deductible employer plans with HSAs often benefit the wealthy. People with higher salaries, who have the means to funnel money into an HSA, could conceivably use those accounts as a supplement to their retirement income. In addition to using those funds for medical care after people turn 65, they can use their non-taxed HSA contributions and tax-deferred interest to cover other expenses at a presumably lower personal income tax rate. Lower-income workers often worry about other day-to-day expenses instead of saving for an HSA.

“There's evidence that high-income people are holding these health savings accounts and are benefiting from this tax shelter,” Trish said.

The survey data also confirm what the U.S. Census Bureau showed in its recent report: Even though employer health insurance is changing, nearly the same percentage of companies (57%) still offer it. The ACA requires employers with at least 50 full-time workers to offer comprehensive health coverage or face a tax penalty. The employer mandate also hasn't forced most companies to reduce hours or cut jobs, according to the survey.

The ACA's individual and small-group exchanges are “politically much hotter” than the employer-based market, Altman said. And that has often diverted attention away from employer coverage, which likely will continue to have modest premium growth in 2017, according to benefits firm Mercer.

“The carriers are still trying to predict what the risk pool is going to look like,” the EBRI's Fronstin said of the public exchanges. “You don't have that going on in the employer-based market.”